South Africa’s revamped carbon tax policy, coming into effect in 2026, signals a decisive shift in the country’s climate and energy landscape. With stricter emissions thresholds and an expanded scope for carbon offsets, the revised framework is expected to drive significant investment in renewable energy while reshaping how businesses source their electricity.
Alberto Gambacorta, Executive Vice-President for Sub-Saharan Africa at renewable energy firm Scatec, outlines how this policy evolution opens new doors—despite notable hurdles.
A Financial Incentive for Cleaner Energy
By making fossil-fuel-based electricity more costly, the updated carbon tax incentivises companies to shift towards cleaner alternatives. “For businesses tied to coal-intensive energy supply chains, investing in renewables is becoming a financial necessity,” Gambacorta explains. This economic pressure is increasing the competitiveness of solar, wind, and battery storage technologies, particularly for industrial users.
Making Use of Carbon Offsets
The revised policy allows for greater use of carbon offsets, particularly for projects under South Africa’s REIPPP (Renewable Energy Independent Power Producer Procurement Programme). However, projects must meet the principle of additionality—demonstrating they would not be viable without the offset mechanism. “That’s becoming harder to prove in South Africa, and it gets technical very quickly,” Gambacorta cautions.
Confronting Grid Constraints
Despite growing demand for clean energy, grid infrastructure remains a major bottleneck. Several REIPPP rounds have faltered due to limited transmission capacity. Yet, there are signs of progress. The government’s Independent Transmission Programme invites private-sector involvement in building 14,000 kilometres of high-voltage lines and hundreds of transformers nationwide.
Storage solutions, particularly battery systems, also present an opportunity. These technologies help balance the grid by storing excess energy generated during peak sunlight hours and releasing it when demand and capacity align.
Corporate Procurement Under Pressure
The evolving carbon tax is expected to fuel corporate demand for Power Purchase Agreements (PPAs), as companies look to cut emissions and reduce energy costs. This pressure is amplified by international regulations, notably the EU’s Carbon Border Adjustment Mechanism (CBAM). “Manufacturers exporting to Europe face punitive tariffs if they rely on coal-based electricity,” Gambacorta notes. “Procuring renewable energy is no longer just about sustainability—it’s about survival in global markets.”
Positioning for a Green Hydrogen Future
The policy shift also presents a long-term opportunity: green hydrogen. With abundant renewable energy resources and rising global demand, South Africa could become a key player in this emerging sector. Still, Gambacorta warns that competitiveness will depend on overcoming infrastructure and export limitations. “You must be able to produce at the right cost—and have the means to move your product to market.”
Turning Policy into Progress
Instead of introducing further regulation, the focus should be on fully implementing existing frameworks—such as the Electricity Regulation Act and wheeling mechanisms. A national curtailment framework could also allow renewables to be traded more flexibly.
Moreover, municipalities must be better equipped to procure and distribute clean energy. “Only a few are currently capable of acting as effective off-takers,” says Gambacorta.
A Call for Collaboration
To unlock the full potential of South Africa’s energy transition, cooperation between government and the private sector is essential. Forums for public-private dialogue are already active, but real progress hinges on translating discussions into delivery—expanding grid capacity, accelerating project execution, and supporting municipal readiness.
“With the right collaboration,” Gambacorta concludes, “South Africa can meet its energy goals and build a more sustainable, inclusive economy.”